Merkel Warms to Carbon Capture as Energy Shift Takes Shape

German Chancellor Angela Merkel’s Cabinet backed a draft law that paves the way for utilities to pump greenhouse gases underground, a move aimed at helping the government to switch its energy policy away from nuclear power.

Germany’s two biggest utilities, E.ON AG (EOAN) and RWE AG (RWE), rose in Frankfurt trading today as ministers in Berlin agreed on legislation to permit so-called carbon capture and storage, or CCS. German utilities have pressed for laws that would allow carbon-dioxide emissions from coal-fired power stations to be permanently stored underground since at least November 2009.

Merkel’s plan, which implements a European Union law, would help her plug a potential gap in the energy mix serving Europe’s largest economy caused by her retreat from nuclear after the disaster in Japan. It would also give E.ON and RWE some planning certainty for conventional power-plant investments after they said Merkel’s atomic reversal might endanger energy security.

The bill, which allows the government to promote carbon capture, “is part of the shift on energy,” Economy Minister Rainer Bruederle said in an interview in Berlin yesterday. “That will probably focus strongly on natural gas, but we will also be ramping up power plants” that use coal.

E.ON rose 0.9 percent to 22.55 euros as of 3:45 p.m. local time in Frankfurt trading, while RWE also added 0.9 percent to 47.18 euros. Carbon dioxide emission permits for December rose 0.4 percent to 16.65 euros a metric ton on the ICE Futures Europe exchange in London.

EU Opens Bids

The European Union in November opened bids for an initial 4.3 billion euros ($6 billion) in aid to store carbon dioxide underground and promote renewable energy to help fight global warming. The EU aims to have as many as 12 carbon-capture and storage demonstration projects ready by the end of 2015.

Merkel’s plan, which now goes to parliament, allows for carbon-capture pilot projects and calls for a review of the technology’s potential in 2017, the Economy Ministry said in a statement. Responding to public concern about carbon capture, state governments are given the right to veto projects.

“CCS is the next big political hot potato because no one wants that kind of facility built next to them,” Bernhard Jeggle, an analyst with Landesbank Baden-Wuerttemberg in Stuttgart, said by phone. “If the government strongly commits itself to CCS, this strategy will be pushing additional voters into the hands of the Green party.”

Loss to Greens

CCS moved up the agenda after Merkel announced a 90-day moratorium on March 14 on a planned extension of the running times of Germany’s 17 nuclear plants following the Fukushima disaster. She also ordered the seven oldest plants idled pending safety checks and pledged to speed the transition to renewable energy sources.

That wasn’t enough to stop her coalition losing control of its southern heartland in Baden-Wuerttemberg to the anti-nuclear Greens in a state election on March 27. Nationally, Merkel’s Christian Democrats and their Free Democratic coalition partner trail the Greens and opposition Social Democrats by 34 percent to 51 percent, a Forsa poll for Stern magazine showed today.

Merkel, Bruederle and Environment Minister Norbert Roettgen are due to meet in Berlin on April 15 with the prime ministers of Germany’s 16 states to discuss the future energy mix. The coalition’s plans include expanding offshore wind parks and building more gas plants to plug a gap in power generation that would follow a retreat from nuclear power, as well as CCS.

‘Merely a Figleaf’

Carbon capture is “merely a figleaf” for building new coal-fired plants, environmental group Friends of the Earth Germany said in an e-mailed statement, urging Merkel to promote renewable energy and gas instead.

RWE shelved the start of a planned lignite-fired plant near Cologne in November 2009 that would have stored its emissions underground, saying that Germany lacked the laws necessary to encourage carbon capture technology. Two months later, the Essen-based utility said that public opposition to storing carbon dioxide in Germany might force it to build a coal-fired plant with facilities to capture emissions outside the country.

“Those people who oppose nuclear power will have to support other technologies, and given solar panels and wind parks won’t immediately suffice, carbon capture and storage will have to be developed,” Michael Schaefer, a Frankfurt-based Equinet AG analyst, said in a March 29 interview.

To contact the reporters on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net; Nicholas Comfort at ncomfort1@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net

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